Income Tax Computations

This post is not the typical money management topic, however a friend requested it so here goes. DISCLAIMER: This information is not meant to supersede the directives of the Ministry of Finance. I just wanted to shed a little light on the basics of the computation since most persons I know have some challenge with it.

Income Tax (PAYE) should be paid based on the gross annual earnings of an individual. It is to be deducted and remitted monthly by the employer and in the subsequent year, income earners have the opportunity to submit a tax return. Persons with multiple sources of income and those who would have eligible deductions should file a return. You do not need to submit a tax return if:

1. You earn less than the yearly personal allowance (now $72,000.00)

2. You only earn emolument income

Noteworthy deductions:

• Registered Deed of Covenants – up to 15% of your annual income
• Tertiary Expenses – up to $60,000.00 per household for foreign tertiary expenses
• First time home ownership – joint or single deduction up to $25,000.00
•  CNG Kit Installations – 25% of the cost up to $10,000.00
• Tax incentive savings plans or annuity payments - 25% contributions.

Simply put, the calculation determines how much taxes you should have paid based on earnings and other deductions like those listed above. Then, the tax that you actually paid is subtracted to arrive at the payable or refundable position. Of course, the latter is preferred 😊 however if you need to pay, please do so promptly because interest and penalties will accrue.

This post is a brief summary of the main points so if there are any questions or further explanation needed, please contact me here or follow the link to the official instructions from Inland Revenue Division here.